Affordable-Housing Efforts in NYC Could Spread Nationwide

By Robin Shulman
Washington Post Staff Writer
Sunday, March 15, 2009

NEW YORK -- Shaun Donovan's legacy as New York City housing commissioner is perhaps most apparent in places such as this sprawling, red-brick, low-rent building in the Bronx.

Donovan started a fund that provided nonprofit and small developers with capital to buy this and other buildings and keep the rents low. The fund has provided loans for 2,500 housing units. For tenants in this particular six-story building on Loring Place, Donovan is the man who helped keep them in their homes.

"I couldn't afford to pay more," said Carmen Torres, 63, who survives on disability payments and lives with her granddaughter. "I was scared they would raise the rent and kick me out."

Now Donovan is secretary of the U.S. Department of Housing and Urban Development. He is faced with bigger problems, including a soaring number of defaulting mortgages across the country. Yet Donovan says that the kind of fund he created in New York could be used to buy and renovate foreclosed homes.

He says his experience in New York -- including changing zoning rules to encourage construction of affordable housing, and fostering a program to help homeowners avoid foreclosure -- translates easily to the national stage. And here in New York, affordable-housing advocates, bankers, academics, foundation managers and colleagues from government all say that if one person can tackle the big national problems in housing, it is Donovan.

"I think there is no one in America who understands the nexis between housing policy and the private market in all of the many facets better than Shaun," said Daniel L. Doctoroff, the former deputy mayor to whom Donovan reported while he was commissioner of the Department of Housing Preservation and Development.

It is hard to find a detractor. Bankers and developers say Donovan has a deep understanding of market forces. Affordable-housing advocates say he is committed to the public good.

"He's also super smart, extraordinarily hardworking, easy to get along with and politically savvy," said Brad Lander, the former director of the Pratt Center for Community Development, which has criticized other city housing officials.

After becoming housing commissioner in 2004, Donovan helped expand Mayor Michael R. Bloomberg's (I) iteration of a plan for affordable housing into a 10-year, 165,000-unit, $7.5 billion project.

Donovan's tenure coincided with a crisis in affordable housing. During the financial downturn of the 1970s and 1980s, the city of New York had taken possession of the deeds to many foreclosed and abandoned properties and later used them to create affordable housing. That stock had dried up. At the same time, an overheated real estate market was pressuring poor and middle-class renters out of their homes. Subsidy programs were fading away and rent-stabilization rules had been loosened, so low-rent apartments were moving to the open market.

As head of an agency whose mission is to develop affordable housing, Donovan set out to harness the strength of a frenzied real estate market to create low-cost homes and to carve out a place for working people to live in a boomtown.

He created a $230 million acquisition fund to provide capital for affordable-housing developers, who had relied on the city's supply of property, to bid competitively in the private market. The program combined city loans with guarantees from more than a dozen banks, such as HSBC, Deutsche Bank and J.P. Morgan Chase, and foundations including Ford, MacArthur and Rockefeller.

"He figured out how to align those forces in a way that created stability and opportunities for low-income communities," said Gary Hattem, president of the Deutsche Bank Americas Foundation, the bank's philanthropic arm, and managing director of the Community Development Finance Group, the bank's lending and investing section. "He entered New York at the height of the real estate frenzy here with a lot of competing interests, and I think he navigated that exceptionally well during a difficult time."

New York's acquisition fund won an innovation award from Harvard and has been replicated in Los Angeles, as similar programs appeared in Atlanta and Louisiana, as part of the effort to rebuild the Gulf Coast after Hurricane Katrina.

Still, Donovan was challenged to keep up the city's levels of affordable housing. While a fellow at the Furman Center for Real Estate and Urban Policy at New York University, he had researched the problem of "expiring uses," which are subsidies for affordable housing that go away with time, leaving a vacuum of low-cost housing.

Though he succeeded in saving thousands of state- and federally subsidized apartments, Donovan could not stanch the hemorrhage of low-cost housing. The state Mitchell-Lama subsidy program went from 53,016 apartments in 2004 to 36,961 in 2008, according to the Community Service Society. Federal subsidy programs, including Section 8, covered 48,036 apartments in 2004 and 46,297 by 2008.

At the same time, rent controls had been loosened in the 1990s to bring vacant apartments out of regulation and into the market. As a result, from 2002 to 2008, the number of New York City apartments renting for less than $1,000 per month fell by an estimated 194,000, shrinking from 64 percent of the city's housing to 53 percent, according to Lander, the community development advocate.

The city was going through its largest and most aggressive plan in perhaps 75 years to rezone underutilized land for housing, said Rafael Cestero, who served as Donovan's deputy until 2007 and who will succeed him as housing commissioner. "There was enormous push to ensure that the rezoning didn't all become luxury high-rise condos," Cestero said.

Donovan revived an old idea, inclusionary zoning, which grants developers the maximum height for their market-rate residences if they agree to build low-cost housing, too.

"The concept was highly controversial when Shaun came in, but over a year Shaun led the team to understand the economy, and build the incentives, and explain to the City Council that it had to approve the rezoning," Doctoroff said. "He built the policy financially and politically."

In Donovan's view, the program, which has created 1,833 units of affordable housing to date, built neighborhoods with long-term prospects for income diversity. "We've learned very clearly from the history of housing policy from the last half-century that building 100 percent very low-income development is not a sustainable model," said Donovan in a phone interview. "A lot of the preservation issues today have to deal with failures 20 to 30 years ago about what would happen 20 to 30 years later. With those units permanently available, you wouldn't have this kind of cycle happening again."

Donovan also pursued other projects. For years, affordable-housing advocates had been urging the repeal of a tax break for developers to build market-rate housing. Donovan convened a commission to study the issue, and spearheaded changes, requiring developers to include affordable housing to get the break.

In 2007, before bad mortgages had become a crisis in New York, Donovan helped conceive the Center for New York City Neighborhoods, a nonprofit group funded by his agency, the City Council and others, to provide counseling, legal services and education to help homeowners avoid foreclosures.

The biggest criticisms of Donovan are not really of Donovan but of the city's housing policy. Some homeless advocates say the mayor's affordable-housing plan did not include enough units dedicated to very low-income tenants -- leading to record numbers of homeless families.

Others say that the city did not do enough to advocate for changes in laws at the state level to protect rent-stabilized tenants from landlords who sought to evict them and raise rents as the market continued to soar.

For his part, Donovan said he plans to bring his New York approach to Washington and use government to catalyze market forces to create diverse, sustainable neighborhoods.

"HUD has to get beyond a view of housing that is a generation old," Donovan said. "It has to open up its programs to make it more flexible and invite innovation."

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